East Asian Crosscurrents

1. East Asia will recover from the present monetary and economic crisis for three reasons.

First, the empirical evidence supports this view. At lunch yesterday, we heard about the Korean recovery. The same can be said for Thailand. The Thai bhat and the Korean won have stabilized, interest rates have declined, exports are up, and their trade and current account balances are positive. Most important of all, foreign direct investment in both Korea and Thailand in 1998 surpassed the levels of FDI in the pre-crisis period of 1997, signalling a return of investor confidence.

Second, in spite of the crisis, East Asia continues to enjoy strong fundamentals. We have a strong work ethic, high savings, and a high respect for education and learning. We have a capacity to accept short-term pain for long-term gain, and we remain committed to free trade and open economies.

Third, the rise of East Asia in the world economy is inevitable. If you look at the progress which East Asia has made in the last 30 years, it has been quite dramatic. In 1965, the economies of East Asia constituted only 9 percent of world production; in 1975, they constituted 15 percent. By the year 1995, East Asia had caught up with the United States, accounting for 25 percent of world production. I believe that the current crisis is a temporary setback and that East Asia’s historical march to economic parity with the West is unstoppable.

2. The durability of East Asia’s recovery will depend upon six critical choices:

• First, we have a choice between clean and competent government and corrupt and incompetent government.
  
• Second, we have a choice between governments which are democratic and respect the rule of law, and governments which are not democratic and do not respect the rule of law.
  
• Third, we face a critical choice of embracing the concept of good corporate governance or retaining the three evils of corruption, collusion, and nepotism.
  
• Fourth, we face a critical choice of turning inward and becoming protectionist or opening up our economies even more to trade and investment.
  
• Fifth, we face a choice between protecting our companies, our conglomerates, our banks, and our financial institutions, or allowing market forces to force them to restructure, merge, be acquired, or die.
  
• Sixth, we face a choice between building in each of our countries what I would call a “stake-holder” society, with a large measure of social equity and social cohesion, and societies with large disparities between the haves and have-nots.

My fear is not that East Asia will not recover; my fear is that it may recover too soon. If it recovers too soon, the momentum for reform will fade. For example, the Prime Minister of Thailand has submitted ten bills to Parliament to reform the banking and financial sector. So far, only one of the ten has been enacted into law; the other nine have been bottled up in committees. If the Thai economy recovers too soon the pressure for reform will fade.

3. Japan. Americans used to admire Japan, and it was not so long ago that Ezra Vogel wrote Japan as Number One. Today, many Americans look down on Japan. Some Americans have confided in me that they believe that Japan will end up as a second-rate country. I do not share this sentiment. One hundred and fifty years ago, Japan faced its first historic challenge—the challenge of modernization. Japan was the only Asian country which successfully embraced this challenge and reinvented itself. At the end of the Second World War, Japan faced its second historic challenge-rebuilding the Japanese economy. In less than two generations, Japan has rebuilt a modern economy and has caught up with the West. Today, Japan is faced with its third historic challenge—the challenge of globalization. I have every confidence that Japan will rise to this historic challenge as it did to the two previous ones, and that it will reinvent itself again and reemerge as a competititive global player.

4. China. Yesterday, an American speaker expressed his concern that there are some Americans who miss the Cold War and who have been looking for a new enemy. He also told us that there is a growing coalition of interest groups in America which are determined to demonize China. The perspective from Southeast Asia could not be more different. China has never enjoyed as much prestige and good will as it does today. In spite of China’s many difficulties, the Chinese economy grew last year at over seven percent and China’s leaders have kept their promise not to devalue the renminbi. Southeast Asia does not perceive China’s military modernization as a threat to the region. We have, however, put China on notice that any use of force by China to assert its claims to the islands in the South China Sea will result in a serious rupture of the good relations that now exist between China and Southeast Asia. On the relationship between China and Taiwan, the Southeast Asian view can be encapsulated in two phrases: no independence for Taiwan, and no use of force to bring about reunification.

5. What will be the nature of the relationships between East Asia, the United States, and Europe in the 21st Century? Will the three regions act in concert or in conflict? The relationship between the three regions is dynamic, not static. In my view, the United States is likely to remain a superpower in the next century. Its economy will remain prosperous, driven by knowledge-intensive industries and creativity. By the year 2005, the Western Hemisphere is likely to be a free-trade area. At the same time, the United States will be a valued partner of a dynamic Pacific economic community.

The European Union is likely to expand and have as many as 25 member states. It will have a collective economic weight equal to, if not greater than that of the United States. And with the successful completion of Economic and Monetary Union—which East Asia warmly welcomes and applauds—our European friends are now in quest of their next great ambition—the forging of a common foreign and security policy. This will probably take one generation to accomplish, but I believe that some time in the 21st century Winston Churchill’s 1947 vision of a United States of Europe will come true.

East Asia will not be standing still. If we can bring about a historic reconciliation between China and Japan and between Japan and Korea, the road will be clear for East Asia to come together in the same way as the West Europeans have done, and build a united, peaceful, and prosperous East Asia. If we succeed in this endeavor, East Asia will have a collective economic weight greater than the combined weight of the United States and Europe.

The relationships between East Asia, the United States, and Europe in the 21st century will be characterized in part by cooperation and in part by competition. The three regions will, however, be living in a world very different from the world in which we live now. It will be a highly interdependent and interconnected world. The three regions will have no choice but to cooperate in order to maintain world peace, prosperity, equity, and the environmental health of our one world.